Friday, June 6, 2014

Stock Analysis of COP

ConocoPhillips (COP) explores for, develops, and produces crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. This dividend achiever has paid dividends since 1934 and has managed to increase them for 13 years in a row.

The company’s latest dividend increase was announced in July 2013 when the Board of Directors approved a 4.50% increase in the quarterly dividend to 69 cents /share. The company’s peer group includes Exxon-Mobil (XOM), British Petroleum (BP) and Royal Dutch Shell (RDS/B).

Over the past decade this dividend growth stock has delivered an annualized total return of 13.80% to its shareholders.


The company has managed to deliver a 6.20% average increase in annual EPS over the past decade. ConocoPhillips is expected to earn $6.28 per share in 2014 and $6.17 per share in 2015. In comparison, the company earned $6.43/share in 2013.

ConocoPhillips does not have a record of consistent share repurchases. Between 2007 and 2014, the number of shares decreased from 1.646 billion to 1.24 billion.

The annual dividend payment has increased by 15.70% per year over the past decade, which is higher than the growth in EPS. This was mostly possible due to the expansion in the dividend payout ratio over the past decade. Going forward, I expect dividends to grow by 6% - 7%/year

A 6% growth in distributions translates into the dividend payment doubling every twelve years on average. This dividend amount is adjusted for the spin-off of Phillips 66 in 2012.  If we check the dividend history, going as far back as 1989, we could see that ConocoPhillips has actually managed to double dividends every eight years on average.

The dividend payout ratio has increased from 12% in 2004 to under 42% by 2013. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The return on equity has decreased slightly from 21% in 2004 to 18% in 2013. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

Currently, the stock is attractively valued, as it trades at a forward P/E of 12.40 and yields 3.50%. I would consider adding to my position on dips, and subject to availability of funds.

Full Disclosure: Long COP, XOM, BP, RDS/B

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1 comment:

  1. Yes very high quality stock with lots of potential growth in share price and dividend increases. I just increased my position of COP myself.

    Good Day and Grind On!

    ReplyDelete